EverydayInvestor (< 20)

For short sellers & deep thinkers only

37

I will be writing to the SEC to comment on the proposed uptick rules. If you would like to help out or potentially add your name as a signatory to my letter, please contact me using the form on my blog. (Unsurprisingly, I will be against the proposed rules, but least against an upbid rule only when a stock is already down 10% or more). I will get back to you.

Please, this will take enough time as it is, don't email me unless you really are interested and have something to say. Feel free to comment here if you want to discuss the uptick rule, but I can't guarantee that I will read or respond to the comments here.

Please correct me if I am wrong but the greatest nation in the world was NOT built by short sellers and rapid trading schemes. It was built on honest dealings, hard work, intelligent long-term thinking, and optimism that future growth in the economy was possible.

NONE OF THE ABOVE ARE REPRESENTED BY SHORT SELLING, especially free-for-all unregulated short selling. In essence you are selling something you do not own, you collect the money up front (or your broker does) for selling such, and you never plan to deliver the goods you sold in the first place!

If I sold you a car sitting in my neighbors yard, using the title from his bank as an excuse to grab your money, but never gave you the car, hoping only to buy back the value of the car after it has depreciated, what jobs and worth have you actually created for real economic growth? The person who bought the car from you, but never got a clean title from you (or your broker) or EVEN THE CAR TO DRIVE has been royally screwed over. In most states (excluding perhaps only California) you would be prosecuted and thrown into JAIL for FRAUD. But you argue, as do other short sellers and the Wall Street exchanges who profit from such sheanigans, that free-for-all selling of American businesses and jobs down the drain is a terrific idea. On Wall Street it's called business as usual; on main street its called financial devastation and unemployment.

I would prefer we simply go back to the uptick rule (a basic, moral and honest regulation on monkey-business) as it was written and enforced on the exchanges before July 2007. Real world evidence since mid-2007 suggests the BOOM IN SHORT SELLING AND WALL STREET GAME PLAYING HAS NOT WORKED TOO WELL FOR ECONOMIC GROWTH HERE OR GLOBALLY. The 70-year "test" of the uptick rule between 1937 and 2007 created mountains of optimism, wealth, jobs and economic growth for the world.

Investing in a business through the stock market creates capital, products and services, employment and prosperity. SHORT SELLING DOES NONE OF THE ABOVE OUTSIDE OF THE TRADING PROFITS RELATED TO IT. The lack of confidence in our economy is DIRECTLY RELATED to the unregulated hack job Wall Street is perpetrating on America, and WILL CONTINUE TO DO SO WITHOUT AN UPTICK RULE TO HOLD SHORT SELLING TO A DIFFERENT STANDARD. Morally, politically, ethically and legally selling something you do not own should not be given PREFERENTIAL treatment to the flow of orders from honest, hard working American risk-takers.

GET A FREAKIN CLUE. The only ones arguing against the reinstatement of the uptick rule are economists and professors (who teach because they cannot hack it in the real world), short sellers that directly benefit from bear raids destroying America, and the exchanges/brokerages that collect fees on trading volumes and margin interest.

Luckily this small group represents about 1% of the population, the other 99% correctly understand the Wall Street, New York shell GAME has proven a disaster since the uptick rule was eliminated in July 2007. Call it political pressure or whatever you want, but if the SEC does NOT bring back the uptick rule in its original form the Democrats in Congress WILL, if they want to get reelected. By the way, all those documents the fathers of this country wrote, the Decleration of Independence, the Constintution and the Bill of Rights were written under political pressure also. We wouldn't call them a bad idea would we?

Luckily for the rest of us you totally UNQUALIFIED to speak about the uptick rule or its proper use, as any "ethical" indiviudal who sells stock on the short side heavily would recuse himself/herself in this debate.

The uptick rule will do little to stop short selling. With program trading, there will always be an uptick somewhere. We are talking about millions of transactions a second and one of them will always be an uptick due to market orders.

The uptick rule will do little to stop short selling. With program trading, there will always be an uptick somewhere. We are talking about millions of transactions a second and one of them will always be an uptick due to market orders.

The uptick rule will do little to stop short selling. With program trading, there will always be an uptick somewhere. We are talking about millions of transactions a second and one of them will always be an uptick due to market orders.

I'm not going to debate the ethics (or lack thereof) of short selling. But I will state this simple fact. Short selling manipulates the market and is the cause of the wild swings in the Dow. Before shorting was in vogue, the Dow was rarely up or down more than 50 points in one day. Now we have it up 500 points one day and down 400 the next. That is the result of short selling, period. It may make the shorts a lot of money, but it is killing interest in the stock market. Your average investor wouldn't touch the stock market with a ten foot pole right now. Way too unstable. Shut down the shorts and stabilze the market and you will see a HUGE jump in the Dow. It's really that simple.

Thanks to the ousting of former SEC Chair Donaldson under lobbyist pressure to the Bush adminstration and the easing of regulations at the SEC including the "uptick" rule.....many hard working Americans such as teachers, policemen, and firefighters have had their retirement savings "decimated" by Wall St. traders shorting stocks, driving their values into the ground.

A history lesson for short sellers and those unaware of the uptick rule's effect on trading in the stock market.

#1) Most of the smaller stock averages peaked in July 2007 within 24 hours of the abolition of the uptick rule.

#2) U.S. and global markets undergo worst bear sell-off and economic crisis in modern history, with the sharpest drop in pricing for most stock markets since, gee whiz, 1937-1938 the last time no uptick rule was in place.

#3) Most of the smaller stock averages bottomed within 24 hours of Senator Dodd and Rep. Frank (heads of the finance committees in Washington) publicly discussing they were working with the SEC to bring back the uptick rule in March 2009.

Capitalism is the best economic system ever devised, but it doesn't work without rules. Really, nothing works without rules.

I'm an old race car driver, so I'll succumb to the temptation to offer a racing analogy. It's the last two laps of the Daytona 500 and we're about to go back to racing after a caution period. Dale Earnhardt Jr. is in the lead, followed by Jimmy Johnson. Coming down to take the green flag, Jimmy Johnson has lagged behind Jr. by several hundred yards. Anticipating the green, Johnson nails his throttle while Jr. is still waiting for the flag to be waved. As they cross the start/finish line, Johnson is still a few hundred yards behind Jr. An unsophisticated observer would assume that Johnson had some sort of problem and has lost the race. However, Johnson has built up massive momentum and by the time they get to the middle of the backstretch he has passed Jr. and left him several hundred yards behind, with no possible chance of catching up before the end of the race.

Jimmy Johnson is a short seller in this vignette. Fortunately, NASCAR has rules to strictly limit the amount of momentum that he can build to attack his foe from the rear because allowing such tactics makes for unfair, bad racing.

There's nothing un-American about stock car racing and there's nothing un-American about having some rules to limit the momentum short sellers will be allowed to build.

If you wonder where short sellers get all those shares to borrow, look no further than government pension funds, who lend out many millions of shares through their security lending programs. If we halt this risky practice, we won't need an uptick rule.

#1) Most of the smaller stock averages peaked in July 2007 within 24 hours of the abolition of the uptick rule.

I'm not sure what the point is here, in any case the broader market (of the most highly traded stocks of course) topped in october of 2007, well after the uptick rule was ceased.

and everyone bashing the shorts, your missiles are aimed at the wrong place. Short selling ads liquidity and velocity to the market, and guess what happens when you have more liquidity, instead of less? That's right folks, prices go up.

This is more wag the dog politics, and again I am embarrassed at the lack of understanding of so many people on this blog, you go reaper and write that letter man.

A real uptick rule, enforced on all stocks during all hours of trading, like the old rule would ABSOLUTELY limit short selling and bear raids that destroy stocks.

If a Wall Street scammer cannot find an axnious buyer on which to dump shares, a short seller can sell ZERO shares to depress a company's stock price. The inherent beauty of REQUIRING an equal buyer on the other side of the trade through an uptick in price, severely limited the amount of destruction a short seller could do at any given moment or day of trading.

The watered down, 10% circuit breaker the exchanges understandably want to keep trading volumes high, will NOT work one bit to prevent short sellers from controling stock prices.

As it stands now, without ANY meaningful regulation, someone can dump tens or even hundreds of millions of dollars of sell orders on ANY company without warning or justification. On a small company with a market capitalization under $1 billion, and perhpas single digit millions of normal daily buying volume, this activity IS catastrophic to its price, and CANNOT be logically argued. What gauls me is that short sellers want to have the same or better rights to sell goods, THEY DO NOT EVEN OWN!!! How backward and insane is that??? No wonder investors are LEAVING the stock market in droves. The game's rules have been heavily weighted and rigged to help those that destroy value, economic worth and jobs since early July 2007. Shouldn't we rig the system to do the opposite??? Help us Jesus!

IF IT IS REQUIRED THAT AN EQUAL NUMBER OF BUYERS EXIST TO OFFSET THE SHORT SALE TRADE, SHORT SELLERS WILL NOT BE ABLE TO CONTROL STOCK PRICES. It's really that simple, and that's exactly what the old and simplistic uptick rule was able to accomplish. If it ain't broke don't fix it -- thanks Bushy for another great decision to help ruin our country. We had a good thing going before you came along.

Enron, Lehman Brothers, Drexel Burnham, Bear Sterns.... it's all the evil short sellers. Short sellers exposed these frauds and prevented them from becoming even larger. In the case of Enron, Jim Chanos was hounded by the SEC for speaking out. Enron was a big donor to both parties.

Government employees have a financial interest in preventing the exposure of fraud by politically active companies. In virtually every case above, Lehman and Enron especially, the SEC spent far more time trying to silence short sellers talking about accounting irregularities than they did investigating the supposed, and later proven, fraud. It was only after it was obvious to everyone that the government was forced to take action.

Short sellers do what corrupt governments won't. Wait, you're not Pat Byrne are you. Long live Overstock in its battle against the evil short sellers! -Just ignore the accounting.

The reason the original uptick rule is no longer used is that because a very simple change in trading strategy allows you to circumvent the uptick rule.You obviously haven't taken a class in options. The big "short sellers" that led to collapse of bear sterns didn't short the stock at all. They didn't have a single share short...

As far as illegal naked shorting...it is illegal...

Morally...Would you have bought your house if you had to pay $200K for it and you knew in 3 years it would be worth $80K? Shorters help prices stabilize quicker, which prevents ignorant people like you from making mistakes like buying that overpriced house/stock. If you think shorters shorted houses too low, then buy it!

A real uptick rule, enforced on all stocks during all hours of trading, like the old rule would ABSOLUTELY limit short selling and bear raids that destroy stocks.

Name me one stock that a bear raid destroyed.

Just one.

Bear Stearns is the example most often cited. The company that was heavily into subprime loans, and had multibillion dollar funds go to ZERO in the previous year. They needed a multibillion dollar bailout from the federal reserve, remember, for JPM to take them over. Many many mortgage companies went belly up before the uptick rule, NEW, LEND, AHM, NVS, goodness there were so many of them. So no, that one doesn't count.

I would like to mention that there is a distinction between ABUSIVE NAKED SHORT SELLING, and SHORT SELLING.

Traditional (legal) short selling is usually justified by the so called experts, by stating that short selling aids in PRICE DISCOVERY; I guess supply and demand are not adequate mediators to determine price per share, and therefore we need to introduce artificial supply into the equation to protect us from our inherent nature to irrationally bid things up to infinity. Additionally, the experts claim that short sellers serve a WATCHDOG role in the financial markets, by tempering the efforts of pumpers & others trying to bamboozle investors with less-than-genuine [positive] forecasts of companies that are [in reality] in poor shape.

Sounds like a load of crap to me, but that pretty much sums up the short sellers logic as to why he should be permitted to continue selling that which he does not own.

Then on the other hand, we have the NAKED SHORT SELLER. The naked short seller is nothing more than a perverse abomination of the already questionable practice of traditional short selling. The naked short seller is, in a word, A THIEF... plain & simple. Usually a high-profile hedge fund or short selling specialist who feels entitled by his status, political contributions, and willingness to hire any judge, regulator, or ex-SEC official as a consultant on his payroll at millions of $$$ above & beyond their prior salary, in order to provide him with the JUICE needed to literally PRINT AND SELL AS MANY SHARES OF STOCK AS HE LIKES, IN ANY COMPANY, WITHOUT EVER BEING REQUIRED TO BORROW OR DELIVER ACTUAL SHARES. As I said, a thief, plain and simple.

People are treating the uptick rule like it is some sort of religion instead of analyzing the facts.

If you have ever actually traded the market you would understand the uptick rule will have no impact whatsoever, and that 99.99% of short sellers actually help the market.

I repeat my initial request to BULL... Who will you blame your problems on once the rule is back in place?

By the way, the first time you will realize how nice it is to have short sellers in the market is when you ban short selling and then have your first down day. Instead of people who are short buying the stock to cover, the stock just falls and falls, since buyers (who are not buying to cover) are waiting for the stock to start rising before they buy.

Very frequently it is the act of the shorts buying to cover that actually stops the downward momentum. It is why it can sometimes take so long for a stock to actually decline even though everyone knows the company is 100% broke.

Regardless, there are two issues. One is illegal manipulative shorting, which is not done by retail traders. It is done by the very same people that we are giving Billions in bailout money. The other is normal shorting that effectively just helps define what the value of a stock is and should not be vilified.

Example in my portfolio, I may buy Southwest Airlines (long) and sell United Airlines (short). Does this make me evil? Or does it mean that I just think SWA will do better than UAUA? Since no one can actually know which direction the market will go, allowing shorting allows you to set up delta neutral strategies and other options that make trading based more on fundamentals than luck.

The analogy of "selling something you don’t own" is ridiculous. The better analogy would be that if you are selling your neighbor’s car, and your neighbor allows the sale, and you also are forced by the trading brokerage to sign a contract to buy the neighbors car no matter how expensive it may get. There is no "something for nothing”.

On anothr note, there have been thousands of companies (usually otc & bb) that have been destroyed by naked short selling (aka bear raid). Look at Sedona Corp (sdna.ob)... also see the BLOOMBERG video entitled, PHANTOM SHARES.

Naked short sellers abuse loopholes in the clearance & settlement system to literally PRINT & SELL SHARES of a target company; they continue to create supply, until demand falls [essentially] to zero, and the company goes bankrupt due in large part to the decimation in share price (everybody thinks, something must be wrong), and lack of confidence for the company, its products and services in the marketplace. The naked short seller will publically defame the company with lies and inuendo that become a self-fulfilling prophecy as the shares are driven into the ground with ilegal supply.

For those who would like to see the effects of naked short selling in graph form (fails to deliver versus share price), go to the website failstodeliver.com, and type in the symbol of any company to see how FTD's (naked short selling) effect share price.

Lots of Post Hoc Ergo Propter Hoc fallacies here. Why does EverydayInvestor draw so many uncritical thinkers to his blogs? He offers some of the best stock trading advice on read on the web. It boggles the mind. And of course, let's play the blame game rather than using critical analysis.

The marked difference in reasoning skills between a DemonDoug and a bostonceltics makes me wonder if they are from the same planet.

What this is really going to do is screw up the options markets. Buying an at the money put gets a lot risker if that trade was executed after several down-ticks since there isn't gonna be any short liquidity on the downside until there's an uptick. Also if you use shorts as a hedge that gets a lot more difficult as your going to have exposure on the short side until you get that uptick.

If you a one of the mega short sellers, I can think of at least 3 ways around the uptick rule, including breaking the rule and paying a small fine. If your the little guy using shorts or even puts as a hedge, your the one that this rule will hurt most.

Perhaps you should ask your buddy, Everyday the same question you desire Bull to answer -

Namely, how many small cap companies have you destroyed lately?

In Goodvibe's April Fools dare, Everyday bragged about how easy it is to get CAPS points by redthumbing a small cap in the game and then dumping shares in the real world to drive down its price, producing his amazing score here.

If he is willing to destroy American wealth and jobs just so he can stay at the top of this foolish game, I wonder how many he has put out of business in real life bear raids??? Please ask him for a list, so future prosecutions can be directed at this lunatic....

Shorts need to be regulated by somebody smarter then me. As a scientist with good knowledge of math and statistics, physics and MBA -- I can see the desemation that can occur from intelligence and 2009 technology on the sort selling and down-economic pressure.

These are some of the dumbest comments I've ever seen on CAPs and I've been lurking here for well over a year. I didn't expect this from an EDI post but I suppose this is to be expected when a bunch of herdish jockies try riding the back of the #1 ranked horse ranked.

I swear this forum is going down hole. Most of you should have saved your 2 cents. It seems you might need it if you plan to retire.

I also find most of this discussion specious. The whole issue of shorting seems to serve as a focus for investors to rationalize poor investing decisions and financial losses. The obvious point being missed is that every stock should have a certain intrinsic value based on current assets, debt, and future prospects. The buy/sell pressure that creates a stock price functions independently of that "true" intrinsic value. Shorting is simply another mechanism for a stock to attain an equilibrium price in the market. If shorting is eliminated, absence of buying would eventually result in a similar equilibrium price.

In certain situations, excessive shorting may result in the share price falling well below the stock's true intrinsic value. Instead of wanting to eliminate shorting, an intelligent investor would see this as an excellent investment opportunity and take advantage, knowing that eventually once manipulation is completed the stock is likely to rise. It is hard to imagine a stock remaining permanently suppressed, as time passes and future prospects translate into hard assets. Similarly, I don't believe a quality company can be forced into bankruptcy by shorting.

If shorting were eliminated it's true that the indices and most stock prices would immediately rise. This would be a boon to anyone who quickly sold their long holdings, and a wash for anyone who remained long as buying ground to a halt and stocks slipped back down to their previous equilibrium. Or did you think your pet stocks would simply rise and rise forever until they were valued more than the GDP of the United States?

So if you're a true bullish, long investor stop complaining about shorts and look at them as what they really are - an opportunity to take advantage of a disparity between share price and intrinsic value that will eventually result in a successful investment. Isn't that what we're here for?

If, as stated by many, the uptick rule has no impact... then who cares?, lets just reinstate it and fuggedaboutit...

I think much of the commentary here surrounding short selling is simply unaware of the difference between LEGITIMATE short selling, and naked short selling.

Whether or not anybody believes that legitimate short selling should be permitted, the fact is that this type of short selling [in which shares are legally located, rented & borrowed, and then sold short] has a negligible impact on share price.

Naked Short Selling on the other hand, is a destructive and deceptive art practiced by the "robber barrons" of modern times, quite literally destroying public companies whether good or bad, by CREATING and endless supply of security entitlements (a security entitlement functions in the marketplace EXACTLY as a share of stock). Security entitlements are what a buyer receives when a naked short seller floods the market with SHORT SALES OF STOCK that he has neither located or borrowed, and has no intention of delivering on T+3 (no intention of EVER delivering).

So tell me math whizzes... in a simple equation of supply and demand, where A=supply and B=demand, and A divided by B equals C price per share (A/B=C).

What happens when B (demand) remains fixed, and A rises indefinitely? (A=infinity, B= fixed amount, C falls to almost zero)

This is, in a nutshell, is the effect of naked short selling on any company.

The only criteria for determining which companies will be destroyed is; Will we be able to pull it off?, will this company be able to survive repeated bear raids, can we push the share price low enough, and seed the finanical media with enough negative opinion to achieve our objective. How much will it cost us in campaign contributions and patronage jobs to insure that our illicit activities are not curtailed prior to bankruptcy of the target corporation...

These are the types of questions being asked by the naked short seller.

RVA - nobody wants to ban shorting. Just regulate and control it, So that we can have orderly markets again. And hey: we all like a good short squeeze after all... (well at least those who are long)

And no, when they banned the shorts from many financials in September, the Bank index BKX outperformed the S&P 500. Only after the shorties were reallowed to do their thing did the index underperform the SnP.

The Chinese market dropped 60+% because it was in a bubble. It rose several hundred pcts. before the top. Shorting is allowed in China, but they banned it temporarily to slow down the crash.

seems like some Bull from Bull. Oh well, to be expected from people who don't know actually know how markets work.

Once again I'll point out that the precipitous drops were not in any way connected to the uptick rule, nor really short selling, naked or otherwise. The stock market collapsed because the credit market collapsed. It's really that simple. Borrowing a stock, or just having access to borrow, in order to sell short is one of the levers that keeps the markets efficient. Without short sellers this crash would have come from 10,000 to 20,000 points higher and ended even worse. Short sellers kept at least some level of sanity in the markets which were clearly overbid by speculators and guessers. While I do little short selling, having the mechanism is vitally important to a healthy market long term.

it's ironic that the first blog response talked about the perils of the up-tick rule in terms of how this country was made. First of all, it seems he has the uptick rule and naked shorting confused. Secondly, having an uptick rule is a bit un-american in the sense that it is not "free market", i.e. it is added government contoll.

Last comment, most people see a correlation between uptick removal and economic decline, while negating the most central fundamental underpinings. Hey guys, lets just stop short selling so our markets are over inflated and aesthically pleasing!

Not to bash everyone, I've read a number of comments that agree with what I'm saying.

The stock market doesn't follow any economic news magically. It only reacts to what buyers and sellers do.

And I am not the only one saying that the elimination of the uptick rule increased volatility. So instead of waiting for an uptick to short sell, they could simply knock a stock down. Personally I disagree that short sellers help to keep the market at sane levels. I think that everyone who is long enough in the markets has seen the so called momentum stocks rise to ridiculous heights. Are these just stupid speculators and guessers, or are there shorts being squeezed, thus continuing the spectacular rise, until finally some kind of news comes out that make everybody sell?

But then again maybe I don't understand the markets and it's not buyers and sellers determining stock prices...

Markets, like the ones we are exposed to, have a tendency towards equilibrui. This is what economics tells us. As a behavioral economics student and researcher, I realize the markets are often not efficient, but they do have a tendency to want to be efficient, and eliminate Pareto situations. Without any shorting, the equelibrum price simply would not be realistic.

So, to say that short selling does not keep the market at sane levels, I must disagree. I hope nobody in this chat actually believes that our markets should still be at levels near what they were before the fundamentals of our economy fell out of bed. Anyways, Camistocks the types of questions you raised are commonly debated in the field of behavioral economics aka. economic psychology.

once again, for the 20th time or 3rd or 5th, i lose count. any of you short sellers who tout yourselves so grandly can have my lamborghini if you can beat me in an IQ test and demonstrate greater real life returns over the last year.

but ... since none ofyou are brave enough to step outside of your "i shorted the market as it crashed" high caps game scores, I'll just go back to flirting with this girl I know and worry about how hungry I am.